NZ house prices look set to fall 12% by 2020 as rates rise and population growth eases, Infometrics says

New Zealand house prices could fall 12% by 2020 due to a cocktail of rising interest rates, falling net migration and slowing population growth, economic forecaster Infometrics says

Releasing Infometrics' latest set of forecasts, chief forecaster Gareth Kiernan said Auckland mortgage-holders look particularly vulnerable to even modest interest rate rises in coming years. A future rise of 1.5-2 percentage points would clearly stretch many borrowers in Auckland and squeeze potential buyers out of the market, he said.

Infometrics and most bank economists are expecting the Reserve Bank to keep the OCR on hold until mid-2018. The Reserve Bank itself is forecasting an OCR hike at the start of 2020.

Infometrics last year forecast an 11% drop in house prices in the two years to 2019.

Finance Minister Steven Joyce has been sounding warnings on the potential for rising interest rates recently, saying this week people were hopefully getting the message on potential pressures in the housing market.

See the comments from Kiernan on house prices and the New Zealand economy below:

The New Zealand economy has entered 2017 in good spirits, with Infometrics’ latest forecast predicting GDP growth over the three years to June 2019 will average more than 3.0%pa.

However, Infometrics Chief Forecaster Gareth Kiernan believes the solid outlook for growth masks several risks that hang over the economy.

“Mortgage holders in Auckland look particularly vulnerable to even modest interest rate rises that are likely to occur in the next 2-3 years,” Mr Kiernan said.

“Debt-servicing costs in the city now take up a greater proportion of income than in 2007, when mortgage rates reached 8.7%.

"A future rise of 1.5-2.0 percentage points in mortgage rates would clearly stretch many borrowers in Auckland and squeeze potential buyers out of the market.”

Infometrics predicts that wholesale interest rates will gradually rise further over coming months and that the Reserve Bank will start increasing the official cash rate by mid-2018.

“Net migration and population growth will be easing at the same time as interest rates start to rise, and this cocktail could be the catalyst for a housing market correction,” said Mr Kiernan.

“Apart from the stresses on the market in Auckland, underlying demand conditions in some other regions do not justify current high prices, and we see scope for a 12% drop in property values by the end of 2020.”

Despite the unemployment rate edging up to 5.2% in data released this week, the labour market has been tightening across the board.

The capacity constraints that have previously been most intense in the construction and tourism sectors are becoming more widespread.

Infometrics expects to see increased wage pressures as firms battle harder to attract and retain staff, with the unemployment rate dropping back below 5.0% in 2017 and continuing to decline over the next two years.

Heightened political uncertainty also has the potential to derail New Zealand’s growth train.

At this stage, the main threat to New Zealand from US President Trump’s policy agenda appears to be potential trade barriers against China.

“Mr Trump has talked about 45% tariffs on Chinese imports, which would reduce American demand for Chinese products, dampening economic growth in our largest export market and undermining New Zealand’s export incomes,” said Mr Kiernan.

“President Trump’s proposal is a significant threat to Chinese and global economic growth, and New Zealand would not be able to dodge the flow-on effects over the following couple of years if trade barriers between China and the US were implemented.”

“Closer to home, a change of government or a shift in the balance of power after New Zealand goes to the polls on September 23 could also have affect our medium-term economic outlook,” said Mr Kiernan.

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52 Comments

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15

Yay :) Reduced population growth and cheaper houses is a definitely a good thing :)

And how much will wages rise/fall by in the same time?

How accurate have their previous forecasts been? At least they have the sense to say "could", in fact has anyone correctly predicted a drop in housing prices?

Yes its all the old cliches being trotted out. The only things of note are the 1.5 to 2% increased mortgage rate figures and the 12% fall in prices being plucked out of the sky. How would they know? Nobody knows.
We can all guess.

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I wouldn't be surprised if house prices have fallen by 12% by the end of next month.

I would be. We're talking buying and selling homes, not stocks on sharemarkets.

that is where it has changed, to you and me they are homes to live and bring up families in.
to many many othe people they are investments and are treated as such especially the overseas buyer that just wants the tax free CG
until tax and government policy changes it will continue down that path and the only thing that would change the mindset would be a Ireland or spain type crash.
nobody wants that but we do need to get back to they are homes and a big % of the local population should be able in their lifetime own their own home.

The media writing articles with headlines willing the crash. More affordable houses would be great for all, however a headline indicating a decline and then a first line saying it could decline are very different.
More noise!
Proof will come with time.
"I predict house prices will definitely look to go up and down by 2020" = house prices could go up or down depending...

Alternative facts? House prices have already dropped 5-10% since the peak last year. They will be down by 50% by 2020 after the next recession hits...

I think they'll be down by 238%

I think it understates the change, especially given they are probably talking a nominal rather than 'real' drop in house prices. My impression is that house prices in Auckland have already come back about 10% since the peak. It is difficult to unpick this from the median prices when the top end of the market continues to trade (albeit at static prices) while the low-end investment market stops. In addition the QV figures, which are probably the best indicator are lagged by a couple of months.

It is speculative demand, rather than population growth, which has been driving property prices - as is demonstrated by the relatively low rental increases.

My guess is another 10% during 2017 - bringing it to a 20% decline by 2018

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10

Wow, a whole 12% - instead of houses being extremely unaffordable they will just be highly unaffordable.

This suggests there remains a need to urgently address foreign purchases via stamp duty (especially before China ever loosening up on their capital flight restrictions. It suggests a window to pull back from becoming a Vancouver.

The same outfit that predicted a 40 % drop in 2008 that a lot of FHB listened to and regret it !

That's the most cautious prediction I've ever heard. The housing market will be down by 12% by the end of this year. And it won't stop there.

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10

The report is nonsense. It presumes that the status quo will never change.
The market is in constant flux and making firm predictions will leave egg on the face.
The market will level, fall, rise, zombie, flat line, depending on endless pressures from endless sources.
I confidently predict that by 2020 the market will be different.

I can make a firm prediction that I'd say most will agree reflects reality and should hold true:

National will do nothing that might cause house prices to come down.

They've even said outright they do not want to see house prices come down.

Young'uns, vote National and #RentTillYouDie

Have I missed something or did we fall short with postings on Auction results this week?

Bad results is my guess...

Embarrassing results I think, especially when trying to claim 100% clearance when they've only sold a minuscule volume of 5 apartments.

Yeah, anyone been at auctions this week?

fall by 12% from where today's peak or what some other experts were saying that house price will grow by single digit say 9% - than they go up from 2017 20 2019 (3 years) by appox 27% and than in 2020 will fall by 12%.

It is just a guess game.

Also as someone rightly mentioned, since last year ithas already fallen by 5 % to 8%.

I look forward to seeing listings say Was $1mil Now $880,000 Hurry Sale ends Sunday.

House listings for Auckland on TradeMe:

- Last week: 9,950
- Right now: 10,330

Lots of people hoping to lock in profits and reduce exposure before things head South?

Last month I got 70 houses in AK with the term "reduced" today 91. Small but I will be watch this number with interest..

In trade me - house listing is rising every day by 20 to 30 since last week for Manuka. Today morning was 2070 and just now 2097.

2020? Must be using 24 hour time.

Brave forecast, house prices could be down by 12% in 2020, they also could be up by 5% or down by 22% or even, or up by 33%

Also the weather on 23rd February 2020 could be overcast with a high of 25 deg and strong easterly winds

I have just had a quick look at Trade Me. It looks like 245 Auckland homes were listed on it today. That is an increase of 2.5% on the day. The momentum is certainly picking up. There is no need for first home buyers in Auckland to rush into the market today. Especially if you look at some of the desperate sounding descriptions on some of the listings. Interesting times. Keep paying rent or living at home as things are improving for you. If the market turns backwards in a significant way then those rental payments will look really cheap against the money you will not have to borrow if you are patient.

Why the nice euro cars may i ask?

Here are the latest figures that forecast population growth in NZ for the 2013-2043 based on a net 12,000 immigration per annum I think the numbers speak for themselves as to the future demand.
Also the lose/gain of internal migration of different regions fron census papers so I think everyone would agree they are reasonably reliable ! Please check it out !
http://tonyalexander.co.nz/wp-content/uploads/2017/02/WO-February-23-201...

Based on that, looks like we certainly need to urgently curtail foreign purchases of property. We can't manage supply for natural growth if we're also a haven for other folks cash.

And perhaps time to resurrect government builds such that the Boomers benefited from in their time, that gave them affordable housing.

At the end of the day, housing needs to bear some relation to local incomes or government is just doing it wrong.

A fall of a mere 12% over the next 3-4 years would be a soft-landing, given the spectacular gains of the recent past. So, hardly a forecast to get too uptight about. But the fall could be more pronounced than that - shouldn't rule that out. Auckland property prices are in decline now. Unless there's a compelling personal reason, why would one buy a house in Auckland at this juncture? Better to "buy low and sell high" than the other way around - every Joe & Jill Bloggs knows that. And that's exactly the reason buyer confidence is fragile - as indicated by the falling numbers attending open homes (while sellers/investors are striding towards the door in increasing volumes). Buyers have largely got the message that biding one's time is a prudent strategy right now, while over-geared owners/investors are displaying a nervousness not evident a few months back. Buyers - waiting through autumn and winter just might have a silver lining for you.......

I'm just trying to make it to the point here: This is a line that I have witnessed year on year since 2009, and we are in 2017 now.

Expand your horizons!

It is important to recall that between June 2008 and April 2009 the OCR went from 8.5 to 2.5 - and the RBG ain't got nothin' left in that tank this time round. No knights in white satin anywhere, the world over, in the playlist.

I think young folk's sentiment has changed too this time around. They've been completely abandoned by the Key government for the last eight years, to the point they're losing interest in sticking around to be whipping boys in Auckland. When salary and living equations stop making any sense...they just stop making sense...

Double-GZ, I respectfully suggest that you might not have to wait too much longer.......... We'll see anyway.

I'm a Kiwi who has been living abroad for over 10 years and wanting to move back but I'm certainly going to bide my time and not catch a falling knife on this property market. The US Fed will raise interest rates next month and more upward pressure will begin on NZ mortgage rates forcing prices down. I believe the party is about over and common sense always prevails eventually.

Yes, stay where you are. Don't come back...it's a wise thing to do.

Too many factors in the prediction but one thing for sure is worldwide population continues to INCREASE. This makes little old NZ a more and more desirable place to move to as the world goes to hell in a hand basket. There are predictions that even the basics like clean water is going to be a major problem and even the source of wars. Long term we have far more to worry about than the price of houses, we are focused on "first world problems" just wait until the third world problems come knocking at the door.

Yes, I think this is a real concern, and it shows the downside of National's short-termism that's focused solely on using immigration and foreign money to prop up GDP in a pretend manner, not growing real GDP per capita. There are billions of people in the world, and NZ is somewhere that so many of them will want to come. It will also become important for reasons of food security, water and the like.

People have long said, "What does it matter who owns the land? They can't take it anywhere, and we have the power to legislate over it." However, if NZ couldn't keep two French terrorists / government agents in jail due to trade threats, it's delusional to think we have the strength to maintain our sovereignty over land sold off to foreign public/private entities in the face of similar threats.

Too much short-termism for the benefit of the current investor-voters and business owners, and not enough vision and leadership around what's good for the long term of the country. But of course, they don't have to worry...they'll be dead when these chickens come home to roost, and well, they don't really care that much about the impacts on their children and grandchildren, if it means short term sacrifices.

This might be a stupid question - but what is Nationals vision for NZ?

I think I can understand what they are doing in terms of mass immigration. Bet they think we can't pay for the Babyboomers super so they feel they need more workers to pay taxes to support all those retiring over the next 10 years - hence we've opened the borders to pretty much anyone who wants in. But of course, it's a catch 22 because of the price pressure on houses. Would appear they're screwed either way.

But big picture, whats the plan? I must have missed something between the the ponytail pulling, Kim dotcom and the housing crisis. Are we just treading water right now?

I think you've about hit the nail on the head.

National has no vision. There is no guiding philosophy and they certainly aren't Gurus. I mean Gurus in a expert sense rather than other meanings.

At best National are following the last burnt out remains of neoliberalism, which no longer looks like neoliberalism or makes any sense. So they are a party of the blind leading the blind.

"NZ house prices look set to fall 12% by 2020"....that's a great Tui billboard.

Still anything is possible, after all they may have gone up 20% by the end of 2018 so who cares if they fall 12% in 2019 ?

Anyone notice this article ?

Breaking news
Net migration soars to record 71,300 in year to January
MORE SOON

Or this one ?
NZ house prices could fall by up to 25% - Brian Gaynor | 1 NEWS ...
https://www.tvnz.co.nz/.../nz-house-prices-could-fall-by-up-to-25-brian-......
Jan 20, 2015 - New Zealand house prices could fall by up to 25% in the near future with a devastating impact on the economy, a leading investment analyst is ...

Infometrics and most bank economists are "expecting the Reserve Bank to keep the OCR on hold until mid-2018"
It's now Mid June 2018. Infometrics OCR forecasts were clearly wrong

Yes, this has been the Economists mantra for 9 years that ‘in 6 months time interest rates will return to “normal” and begin to rise’.
Because apparently that’s what interest rates do: rise
Quite logical really.

No, rates haven't risen yet, still waiting, in fact interest rates are whats falling and not property prices (smiles all round)